In the ultimate analysis of the Supreme Court ruling, the power of price fixation and distribution of hydrocarbon produced or to be produced by private oil and gas companies such as RIL now rests with the government and not with the producers. Rather the darker side of the ruling is that it also provides an opportunity to industries - both producers and users — to manipulate the departmental minister and the power that be at the centre to influence the government policies for strong business gains in their favour.

For the present, the SC ruling may help RIL make a profit windfall out of the supply of KG basin gas to prospective users, including the public sector National Thermal Power Corporation (NTPC), Andhra-based Lanco and Anil Ambani's Reliance Natural Resources Limited (RNRL), if Petroleum Minister Murili Deora chooses to pursue with his pro-producer policy in gas pricing to favour RIL as against downstream consumers such as power producers and fertilizer and petro-chemical manufacturers. It may be interesting to note that Mumbai's Congressman Deora, who is privately addressed as 'uncle' by the Ambani brothers, got the government involved in the KG basin gas pricing and supply case apparently to bail Mukesh out of the bind of the 2005 family settlement under which RIL was to supply 28 million cubic metres of gas per day (mmscmd) at $2.34 per million British thermal unit (mmBtu) for 17 years. As the two brothers continued to fight each other even after the family settlement agreement for business supremacy, RIL refused to honour the KG basin gas supply commitment calling it 'unviable'. The government stepped in. The gas price was officially re-fixed at $4.2 per mmBtu. Anil Ambani moved the Bombay High Court to get a decree in favour of the family agreement. The Hight Court, last year, gave a judgement in favour of RNRL which was prompty challenged by RIL before the Supreme Court with 'uncle' Deora's Department of Petroleum threw its hat in the ring to make itself a party in the case saying that the strategic mineral reserve is a national asset and the government has the overriding power to frame policies for its pricing and distribution in the national interest.

There was never any doubt in the mind of any one, including the Ambani brothers, that underground reserves of a strategic raw material such as hydrocarbon are a national asset. The exploration blocks are awarded to an eligible bidder on a lease. The company engaged in exploration and exploitation of oil and gas from a designated block is, therefore, a leaseholder and not a owner. There can't be any confusion about the legal ownership of the block. The question is the right of the leaseholder, who has taken the asset for commercial use, to enter into business deals with clients with regard to pricing and distribution on a short or long-term basis. Thanks to the Supreme Court verdict, the leaseholder is no longer free to strike business deals with it clients if such acts are in disagreement with government decisions or policies. The government plays the predominant role in pricing and distribution of hydrocarbon by the producer-leaseholder although the Supreme Court ruling does not automatically allow the government routinely become a price and distribution controller of gas. The leaseholder can enter into business deals with clients as long as they do not contravene the government policies and directives in those regard.

According to downstream users, the RIL KG basin gas is highly 'overpriced' at $4.2 per mmBtu. But, at the moment, they can't do anything since it has the approval of the government. Reportedly, RIL's profit from the original gas supply agreement with RNRL at $2.34 per unit would come to Rs. 14,940 crore. At $4.2 per unit, RIL could earn profit of over Rs. 37,000 crore. If it is true, this comes as a big financial bonanza for RIL from a single account. Few will deny this is possible without the direct blessings from the government and the petroleum ministry, in particular. Interestingly, the Supreme Court has asked both RIL and RNRL to renegotiate the gas supply contract within six weeks, i.e. before the last week of June, and finalize the gas sale master agreement within another eight weeks. Does this mean RIL can offer a gas sale price to RNRL at lower than the government recommended price of $4.2 per unit? Probably not, if the government objects to that. The renegotiated contract may actually reduce the duration of the gas supply deal to well below 17 years and incorporate a price escalation clause.

Considering the fact that natural gas is a vital input for strategic industries such as power and fertilizer, both of which are facing big supply shortage, the government as a whole may be more inclined to protect the interest of these downstream industries having impact on the overall cost of industrial production and agricultural output. Higher natural gas price will indirectly lead to larger government subsidy to domestic fertilizer producers. Thus, the future government policy towards gas pricing and distribution is expected to be more balanced if not tilted in favour of gas-based power and fertilizer industries. In the long run, the government can't follow a partisan policy for the benefit of this Ambani or that, overlooking the economic compulsions and the interest of the nation. The Supreme Court ruling is to be seen as a victory of the Indian state over individual corporate greed. It also allows gas-based downstream industries to move the court against 'profiteering' by a monopolistic raw material producer-supplier with or without the support of the government. Ideally, such a case should be initiated by a group of downstream users together rather than by an individual company against the specific raw material producer-supplier. In that event, whose side will the government take, the gas producer or the electricity generators? (IPA Service)